By: Ted Dabrowski and John Klingner
Imagine you work for a major company that’s looking to expand its footprint somewhere in the country. The company can go anywhere, and so you look at booming cities in Florida, Texas and a host of other states in the South. And of course, you can’t ignore the old standbys, including Chicago.
But you then see two stories that rapidly dissuade you from considering the Windy City.
That was the reality for any business person reading the news last week. Two articles separately highlighted the city’s overwhelming debt and crime problems, with two paragraphs in two important documents giving particular pause.
The first paragraph was tied to a New York Times article by Andrew Biggs, titled “What’s the matter with Chicago?”, in which he said, “the word bankruptcy has been hanging over Chicago like a storm cloud about to burst.”
Part of his evidence for bankruptcy was the city’s own pension actuaries warning of “potential insolvency” for the city’s biggest pension system. The Municipal Employees’ Annuity and Benefit Fund is just 22% funded and has one of the poorest liquidity positions in the country.
In its letter to the pension fund’s board members, the actuary wrote:
“Given the low funded ratio and the expected timing of employer contributions, the Fund is still at risk of potential insolvency if an economic recession or investment market downturn were to occur in the near term.”
It’s not just the municipal fund that’s in trouble. Chicago’s three other city-run pensions are in equally bad shape, and so is the pension fund for Chicago teachers. Adding up all their debts, Chicago has $53 billion in unfunded pensions. It’s one of the big reasons the city has the worst credit rating in the nation.
You can’t help but think that if you bring your business to Chicago, you’re sure to be a target of the massive tax hikes the city will pursue to stay afloat.
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The safety of employees and customers is another key consideration. Unfortunately for Chicago, companies looking to attract investment are being forced to acknowledge the risks of the city’s crime problem
Crain’s reported that Bally’s, the company building the city’s first casino, officially expressed, in its $250 million stock offering documents, a concern to potential investors about crime’s potential impact on its future revenues:
“Business interruptions in Chicago due to crime or civil unrest could adversely affect us. Our business and our assets are planned to be primarily located in Chicago, Illinois, a city which has recently experienced very high levels of criminality and civil unrest. Heightened criminality or the perception of danger among our customers, and events of civil unrest, at or in the vicinity of any of the facilities that we operate and intend to operate, including our temporary casino and our permanent resort and casino, could result in a decline in customer traffic and spending patterns, which would result in a decline in revenue.”
It’s understandable why Bally’s would be so concerned and why it would warn potential investors.
Chicago was the nation’s homicide capital for the 13th year in a row in 2024. Even with an 8% drop in murders last year, Chicago’s homicide rate remains nearly five times that of New York City (21.5 vs. 4.5 murders for every 100,000 residents) and 3.1 times higher than Los Angeles’ (21.5 vs. 7.0). And the fact that violent crime continued at a near-six year high last year serves as a clear warning to any business considering locating here.
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These stories highlighting the negative attitudes of Chicago’s stakeholders continue to pop up constantly because city leaders refuse to address the city’s structural problems. If anything, they’ve made them worse by embracing soft-on-crime policies and consistently shoving the city’s financial problems into next year.
And as for pensions, Mayor Johnson’s pension working group has yet to offer a single idea – or even report back.
The Windy City needs real pension and spending reforms, tax cuts and a revamped criminal justice system that treats criminals like criminals. Until then, people will continue to leave while the companies and investments Chicago needs to revitalize itself will stay far away.
Read more from Wirepoints:
- Chicago, the nation’s homicide capital 13 years running – A Wirepoints survey of America’s 75 largest cities
- Chicago’s weak luxury real estate market goes beyond Ken Griffin
- Chicago property taxes rise 3.5 times faster than inflation in last decade
- Chicago’s black hole: Pension debts jump even though taxpayers pour billions into city funds
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
Crooks always have been
Someone please name just one Democrat in leadership or a public employee union boss that is actually concerned about fiscal deficits, pension debt, or the economic malaise of Chicago and IL?
The cook country treasurer is an old school democrat, she is concerned about it.
How will taxpayers and courts deal with expectations that can’t be met? Floods, fires, droughts, pensions? Can loss of my mansion in L.A. be distinguished from loss of my part of my pension? Printing money won’t work. Taxing property will simply destroy the value of that property. Forcing insurance companies into bankruptcy will eliminate mortgages and car loans and destroy industries and jobs. Letting losers bear their losses is clearly harsh but may be better than bringing down the entire economic structure. Tax the survivors to provide subsistence to the losers, if needed, but don’t try to make everybody whole.… Read more »
The only solution for Chicago is bankruptcy and let the let the judge eliminate all the contract and pensions obligations. Set pensions to what’s in there and CTU contract like typically in the rest of the state, which is still very generous.
Chicago can’t go bankrupt. Period. End of story. Bankruptcy is for entities that can’t raise sufficient revenue to repay their obligations. Chicago is a home rule city with the legal authority to raise property taxes, “unlimited as to rate or amount.” It thus has the power to raise sufficient revenue for bond repayment, pension obligations, and operations. To do so will damage the economy of the City, but that doesn’t change the obligation of the government, a municipal corporation which is not identical with the City as an entity of 2.4 million people.
Not true. Merely having the right to raise taxes does not render a city ineligible for Chapter 9. The state, of course, would have to authorize municipal bankruptcy first. The real question is whether even bankruptcy could fix it.
Mark, these endless idiots that think taxes can go higher forever really are pathetic. If what they were saying was true then mathematical reality wouldn’t exist, and also no city in history would have ever gone bankrupt. People can only afford so many taxes. What fools.
Theoretically, If my tax burden is 100%, but the government covers all my living/life expenses in proportion to my taxes, then taxes can go to 100%. I am not suggesting this is a reasonable way to live, but it is theoretically possible. Alternately, the government can take in all the earnings, and provide everyone equal living standards. Neither of these is possible in practicality, but it’s theoretically possible.
There would be revolt and war before that would ever happen for long if it was tried. And of course it never will. Taxes going to 100% is not possible. Pensions will be cut.
You can’t be serious, we have this utopian solution already. It’s called WIC and public housing. It has given certain areas of town situations where baby daddies kidnap their on children on the day the welfare card is recharged with money until the mother gives the deadbeat a share of the money. Government generosity will have retired teachers on cots in all of the empty school rooms and eating the lunch room grub.
That’s not even theoretically possible. The government taking 100% of your income and redistributing it is not a tax, that’s marxism in the sense of “”From each according to his ability, to each according to his needs” which wikipedia describes as “free access to and distribution of goods, capital and services”. So a 100% tax isn’t a tax, it means that the value of your labor never belonged to you at all…
If and when a Chicago reaches point where filing bankruptcy is only realistic outcome or seeks state authorization to do so it will be dragged out in courts forever, just look at PR. Crazy idea—could feds (i.e. Trump admin) pass legislation allowing municipalities to file for bankruptcy without state authorization?
This was also essentially the opinion of the IL Supremes when they shot down a very modest pension reform (which would have been a huge positive for debt reduction) – Just keep raising taxes. No concern for citizens or their private property rights or the states economic health.
As to Pensions. SS + up to 5% (not to exceed SS income cap) matching IRA. By matching I mean matching thus no more that what employee contributes. Fair to all concerned, both employee and taxpayer.
No, Chicago IS insolvent. Companies go bankrupt not when they’re insolvent but when they run out of liquidity, when they can’t physically pay the bills. That will happen with Chicago one day (and who knows what that’s going to look like) but until then the downward spiral will continue.
Pensions should be like my IRA, i can only take out what I put in
“The problem with socialism is that you eventually run out of other people’s money”
Margaret Thatcher
As more and more money moves out of IL and CHI, I don’t see how it survives w/o radical change. That said, the population, primarily Chicago, keeps voting farther and farther to the left. The far left is the flat earth, and eventually, if you keep going left, you’ll fall off the edge. I moved out of CHI and will eventually move out of IL. It just costs too much for too little of all the wrong things.
Chicago is a soon to be bankrupt dump run by greedy, corrupt public unions. I’m so glad I don’t live in that pile of sinking ship trash.
Without a big blue bailout on the horizon Chicago is indeed dead. Watch the unions turn on each other if City of Chicago pensions take a hit while State of Illinois pensions are protected.
And watch the currently working unionistas do battle with the retired unionistas for primacy at the trough.
Stop and think about what silver linings you see in Chicago and for that matter Illinois. What are they? I am hard pressed to come up with one. What I see is a future of more misery and futile complaining about the state of affairs. At this point, your leaders have only really bad options. Their best bet is to just play out the string and hope they can kick the problem down the road far enough that it no longer concerns them. All the talk about fixing pensions, the schools, crime, the business environment and illegals is just whistling… Read more »
People with money and patience will make money on real estate by buying at close out prices.
Hmm.. relocating to CHI. Taxed down to your socks, grift to the left and right to get business licenses etc. and a dwindling customer base due to enabled criminals running wild. Nope, I think I’ll skip CHI.
Spot on article. Chicago is in a debt death spiral. Hard to turn this around without bankruptcy.
Don’t blame the retirees, the funds are all managed by appointments made by the mayor. There is always a majority of mayoral sheep who overrule any objections by elected members to pension holidays, loans, missed payments etc. If the city paid into the fund the required amounts faithfully over the years this problem would not exist. If the mayor and political allies, all democrats, didn’t push thru legislation to reward their friends and relatives who retired from executive positions that were, in many instances, given them without qualifications for those positions these problems wouldn’t exist. The whole pension mess is… Read more »
Too many Cities in Illinois have followed Chicago lead , now the entire state is doomed.
Well said. The blame also falls on voters who have enabled single party rule by democrats for a century.
My parents (in their youth) and then grandparents and great-grandparents and my great-great grandparents and my great-great-great grandparents were all Chicago Democrats. These morons had no idea what they were doing. “Unions vote Democrat!” My great-grandfather would say from the old paint factory in Chicago long closed for decades now.
Nobody is arguing that pensions were handled properly by politicians. We all know they were not. But we also know that those pensions and benefits are exorbitant, well beyond what could be reasonably paid. That’s why a compromise needs to be worked out.
Instead, public employees act as if they can extract every last dime from taxpayers.
Exorbitant by your standards? The pension plans were created by politicians, voted on over and over again. Amended and voted on again. Changes were made with the approval of the politicians over the course of decades, remember changes to the fund must be approved by the state legislature.The employees played by the rules, paid into the fund from every check with the percentage deducted as required. There are very few people who, when they were hired, took that city job with the goal in mind to get that big, fat, “exorbitant” pension. The employees played by the rules, period, and… Read more »
No, exorbitant by actuarial standards. The employees are not exempt from culpability. They voted for the scumbag Dems who rewarded their votes with favorable pension gifts. They voted for these a$$holes who mismanaged city, county and state budgets. You have no clue on how pensions are managed because if you did you wouldn’t be spewing your bull$hit in your post.
I’ve never voted for a democrat since I’ve able to vote and I personally know many, many other city workers who didn’t as well. The usual, you voted for this is getting stale. You haters better come up with a new tag line. I keep fully abreast of pension issues and your bullshit is really tiring and juvenile. Somehow nobody has a clue except you pension hating experts. Your dream is to see public pensioners living in cardboard boxes under a highway overpass. Let’s push your buttons even more, my COLA just arrived and it was wonderful. Keep paying your… Read more »
Enjoy the Gravy Train in your cardboard box. Congratulations. You and your fellow criminal co-conspirators earned it. Myself and my hard earned wealth will be long gone in another state. If you are lucky I may toss you a baggie of dog treats as I step over your shivering carcass in the gutter.
No such actuarial standard. The voters are not exempt from culpability. They voted for the politicians that decided to offer up pensions as well short the funding. They voted for these people and the voters deserve to pay the freight. Time for you jealous losers to accept the consequences of your vote.
You have ZERO knowledge of pensions, otherise you wouldn’t have made such an unintelligent statement. There is a reason why the state comes up with their level of funding for pensions and claims that they have a “balanced” budget. Let’s leave out the typical non-pension BS budgeting gimmicks the state uses such as deferring cash payments to the next fiscal year, overestimating revenues, issuing more debt etc. If the state used the actuarial funding requirements they would have to pay way more than what they do pay. The state uses a discount rate that is higher than the actuaries use… Read more »
Here’s my final response, pay me. Too bad you’re an angry, bitter person, pay me.
Social Security Fairness Act just was signed into law. Good news and another 1/2 inch thick wad of cash added to my wallet.
LOL!!! You and the “many, many” that have not voted democrat is non sequitir. First of all, “many” in your statistical sampling is a rounding error, it doesn’t mean $hit. Secondly, the point being made that flew over your head, is that you believe the pensioners are not culpable. They most certainly are, particularly the union pensioners because they vote in block for the scumbags in office that took campaign contributions, which are better known as bribes, to write favorable legislation for public sector unions. No, “you voted for this” is not getting stale. It is a fact and it… Read more »
It’s telling that the suggestion of a reasonable compromise is ALWAYS met with the very childish “you’re just jealous!”
Nobody thinks you took the job just for the pension. Nobody thinks pensions should be reduced to zero. I worked 40 years too, that doesn’t make you special.
Now can we start looking at realistic solutions to this very real problem?
See my response to your butt buddy Paine because it applies to you as well.
Butt buddy? What are you? A 14 year old? You can’t argue intelligently so you resort to ad hominem attacks…behind the safety of your computer.
No I’m a successful retiree worth almost 2 million dollars and the buddy title fits you perfectly. My arguments are clear, direct and appropriate to the hatred you have for public employees who are receiving pension benefits. Too bad your choices in life weren’t as good as mine. Too bad your choices didn’t do the things to make your life comfortable. If you are or were a resident of Chicago I can only imagine the political choices you made. The best part of my postings are that I no longer live in Chicago. I’m far away in a nice rural… Read more »
LOL!!!! Are you willfully ignorant? Did you read my post above? You would have to get smarter just to be stupid. I am still employed and I still live in Illinois and my life is still better than yours and will get even better when I retire to the two states that I am building houses in. Also, I did forget to mention that not only will I be getting a pension, so will my wife. In case your cataract afflicted eyes or Biden like cognitive abilities are causing you problems, let me reiterate that you do not know shit… Read more »
Being arrogant is at least one thing you can brag about. I bet you are a real joy to work with because everybody knows you’re the smartest guy in the room. You look in the mirror several times a day and affirm that statement. As I said way earlier, you struck out in the Little League game, walked off the field and sucked your thumb on the way home to cry in mommy’s arm about how mean the other players were. You should be lucky enough to be in the position I’m in, but you never will be because of… Read more »
I see you had a little problem keeping your insults straight. I’m the one you accused of sucking my thumb after striking out 5 times in a Little League game, not Tommy Paine.
Guys, if we can’t keep track of who is insulting whom I’d say the insults are getting rather out of hand. We try to be wonky policy discussion types here.
I respect that, Mark. I guess the guy who throws the second punch always draws the flag.
Discussion over? Wait, didn’t you say that before? Yeah, it isn’t arrogance when it is true. It isn’t about being the smartest guy in the room, it’s about knowing what you are talking about. It’s about backing up your argument with knowledge of what you are talking about, facts and math instead of feelings and inane comments like “pensions are a promise”. If I didn’t have to participate, by law, in a pension I wouldn’t. So yeah, I am qualified to tell you that what the politicians have done here is wrong. A 3% COLA is unsustainable, an overly optimistic… Read more »
So you won’t mind if we tax all IRAs and 401Ks a 5 or 10% wealth tax? The state needs more money and surely that seems reasonable. Why won’t non-pension retirees be reasonable? It’s such a small amount for the individual yet will help Illinois get out of this mess. It’s a very realistic solution to a very real problem.
A 5% or 10% wealth tax is realistic? Try to stay with us here on planet Earth. Spinning more insane fantasies will not help the situation.
Instead of a wealth tax they could tax retirement income at 4.95% per year. Is that more realistic for you. It’s funny that you find a 5% or 10% out of this world but you want people with pensions to take a similar cut and not doing so is unreasonable. You seem to be the one spinning fantasies if you believe people will voluntarily allow their pensions to be cut.
Once again, you show that you do not understand the situation. A wealth tax on investments is a tax on your total value of your investments. So if you have an IRA worth $1MM, a 10% tax on that the first year is $100K. So now it is worth only $900K and that is before you take any money out. Let’s say that you take out $36K (using the 4% retirement rule), now it is at $864K. Let’s assume it is in conservative investments and it earns 5% or $43K, so now it is worth $907K but then that 10%… Read more »
It seems your example is applying is applying a 10% asset-value tax each year rather than an income tax from whatever is withdrawn. If that’s true your premise is wrong in that JShark was commenting on the creation of an income tax. Nobody would bother saving any financial asset if its net asset value were to be taxed as you’ve described.
You’re missing the point Tommy. I’m not advocating for a wealth tax. I was pointing out that a wealth tax would be similar to a cut to pensions. Both would reduce the overall value of the retirement plan. Why is one fair and the other not? If you are advocating for a 5 to 10% cut to pensions you shouldn’t have any problem agreeing to a wealth tax in the same amount.
Same applies to you, pay me. Just because you’re an angry, bitter individual, too bad, pay me. COLA just landed and more to come.
ZW, you played by the rules. Fine, but as Freddy has pointed out many times, so did we. We paid our assessed taxes every year. We voted for the politicians who approved these contracts? Fine, but so did union members. In percentages much higher than the general electorate. But union members voted in elections that the rest of us had no part in. They elected union leaders, and ratified these contracts. Union members elected leaders who made sure that public unions were the most influential of any group. Who year after year were the biggest donors to politicians, and the… Read more »
100% correct ZW. Employees lived up to their end of the deal and the city and its taxpayers owe them the money. Everyone jealous of people with pensions can SUCK IT.
Or move to Florida
Iowa is where I’m thinking. Iowa recently voted to remove retirement income from taxation. It is still close enough to visit Hubby’s family and closer to mine as I am originally from Iowa.
I don’t think IL will put a wealth tax of 5% on IRAs….but I do think it will eventually tax retirement income with a healthy deductible. This will put a 5% tax on some IRA $. I think I’ll have converted enough to Roth by then to escape this tax grab…..but if I don’t and it looks like a significant hit, I will definitely consider the move.
As far as I know Roth account withdrawals are untaxable only by the federal government. It seems you think states cannot tax them as well. Am I wrong?
Nothing prevents states from taxing Roth IRAs if they choose.
I’m confused on how the would do that. Traditional 401k and IRA withdrawals have forms generated and sent to the government…to be used for (federal) income tax purposes. I’m not aware of any reporting of Roth IRA withdrawals. Are you suggesting that brokerage firms will need to create these forms for some states? From a practical standpoint, I think getting that infrastructure in place will give me plenty of time to move back to Iowa.
Some of my Roth IRA was not from conversion from a traditional IRA. It was straight from a Roth 401k. The money from the Roth 401k already had state income taxes taken from it. Again from a practical standpoint, I think it will be difficult to figure out the percentage of a Roth IRA has already been taxed with state income tax…especially years later. From a practical standpoint, I don’t think IL will try to tax Roth IRA withdrawals for income tax.
I’m not suggesting that it will happen. I’m just stating that nothing prevents the state from taxing Roth investments. Keep in mind nothing prevents the federal government from changing their mind as well. A new crop of politicians could decide that the rich are benefitting too much from this tax break and with the stroke of a pen remove it.
I’m sorry if my comments are not in order because they are not approved yet….;but as I think about it….the idea would lead to a horrible mess. Not only is the part of my Roth IRA that was rolled over from my Roth 401k already subjected to Illinois state income taxes already…..but anyone who moved in from another state may have already paid their own state tax on any amount they converted to Roth in their state. Blindly subjecting Roth IRA withdrawals to IL state taxes without considering this would likely lead to a class action lawsuit….probably ending up in… Read more »
Even considering that state income taxes may have been paid on ROTH account deposits any gain afterwards might still be taxable at the state level. Have you considered that complication as well?
A class action lawsuit because a tax is unfair? Sure Jan. When someone moves to Illinois they are subjected to its tax policies. Doesn’t matter what they paid in other states. Nothing messy about it other than the political consequences of upsetting voters. Unlikely to happen but nothing prevents it.
Agree with both comments. Nothing prevents changing the rules. Still say it sounds like an unlikely mess. Still think it would result in a lawsuit that may not be won. Wow! What a messy idea that would definitely send me back to my home state of Iowa origin.
Marcia, in states like Illinois where retirement income, all of it, is not taxed, your earnings on your Roth would not be taxed.
She knows that. The discussion was around the ability of the state to change those policies in the future.
You are almost correct. Roth 401k contributions are taxed before contribution. It is not subtracted on the IL tax form.
Hmmm….i may need to correct. I’m looking at the current publication 120 and Roth 401k contributions may now be subtracted. My contributions were quite a while ago and this was not the case then
Nope….that is 401k distributions subtracted from a 401k….not contributions. I’m still correct. Roth 401k contributions are taxed by IL still
So….just to be clear about just how insane this idea is (indiscriminately taxing Roth IRA distributions) … IL would go from a retiree friendly state to one that would: 1) subject some retiree income (Roth contributions) to double state income taxes taken already….5% going in and 5% going out, and 2) become the only state in the entire country that taxes Roth earnings and if they try to remedy the double state taxes issue…..probably good luck with Roth 401k contributions because I think all tracking is gone after it has been rolled over into a Roth. Roth IRA contributions are… Read more »
Everyone would do better if pensions stopped and went to a 401k model. There is a strong argument that paying into a pension for 35 years does not guarantee someone a lifetime of income, as the time value of money is lost regardless of what return is earned on that money. Life expectancy and benefits paid far exceeds what was paid into those pensions by employees. The rest of us have a 401k and pay our own way by saving. People “paying into the system” for 35 years can only take advantage of it because of the generosity of taxpayers… Read more »
Not a democrat, never voted for one in my life. The rules are the rules, I didn’t make them as they were in place long before I was employed. I paid into the pension, I funded personal IRA’s and started contributing immediately to the 457b plan when it was introduced. I planned, saved, contributed and again, get this right again, played by the rules. Not my fault nor the fault of almost every public pensioner. I along with millions of others worked extra jobs for decades and paid into social security and those benefits have been taken away for 40… Read more »
The issue isn’t jealousy for the right minded economically. It is rather that the system isn’t sustainable. And the response to raise taxes doesn’t even scratch the surface given the enormous size of the pension debt – throughout the state but in particular Chicago. The pay me narrative really doesn’t matter because pensions are so finely protected under Illinois law. Everyone knows pay me is the law. The issue is what happens when the money runs out. I don’t see Springfield ever authorizing bankruptcy for Chicago because it would be a huge admission of failure and bankruptcy could undo the… Read more »
Authorizing bankruptcy for Chicago would be a huge admission of failure- reminded me of Joe Pesci’s line in My Cousin Vinnie when the witness is loathe to admit he was wrong:
Go ahead, you can say it. They already know.